New Dividends Appreciation data series - backtesting

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lazyday
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Re: New Dividends Appreciation data series - backtesting

Post by lazyday » Wed Aug 16, 2017 11:53 am

siamond wrote:
Wed Aug 16, 2017 8:19 am
lazyday wrote:
Wed Aug 16, 2017 5:02 am
5 factor, right? I wan't able to select AQR 5 factor when I tried SCHD.
Yes, same thing here, so I settled for AQR 4 factors. Apparently a limitation of PV's factor analysis.
But you have 5 factors: market, size, value, momentum, quality. When I do an ARQ 4 factor run, I don't get quality.

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siamond
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Re: New Dividends Appreciation data series - backtesting

Post by siamond » Wed Aug 16, 2017 9:18 pm

lazyday wrote:
Wed Aug 16, 2017 11:53 am
siamond wrote:
Wed Aug 16, 2017 8:19 am
lazyday wrote:
Wed Aug 16, 2017 5:02 am
5 factor, right? I wan't able to select AQR 5 factor when I tried SCHD.
Yes, same thing here, so I settled for AQR 4 factors. Apparently a limitation of PV's factor analysis.
But you have 5 factors: market, size, value, momentum, quality. When I do an ARQ 4 factor run, I don't get quality.
That would be because you didn't select the option 'Include Quality Factor (QMJ)'... :wink:

lazyday
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Re: New Dividends Appreciation data series - backtesting

Post by lazyday » Thu Aug 17, 2017 9:17 am

siamond wrote:
Wed Aug 16, 2017 9:18 pm
That would be because you didn't select the option 'Include Quality Factor (QMJ)'... :wink:
oops. Thank you.

Large quality QUAL, just using ETF data instead of backtesting prior to availability, shows lower QMJ (quality) than any of three smallcap funds I happened to try it against. (one of the three has low R-sq) https://www.portfoliovisualizer.com/fac ... sion=false

600 Value IJS has 94% R-sq, but -.22% alpha per month. 17 years of data.

Theoretical
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Re: New Dividends Appreciation data series - backtesting

Post by Theoretical » Thu Aug 17, 2017 12:44 pm

The more I use it, the less I trust QMJ as provIding significant benefit to me as an investor, especially because of how high the quality loads are even on totally unscreened value funds (look at IWN - Russell 2K value).

Profitability and Investment seem to provide more concrete, less swingy/unpredictable factor analysis.

snarlyjack
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Re: New Dividends Appreciation data series - backtesting

Post by snarlyjack » Tue Aug 22, 2017 6:58 pm

Siamond,

(I' am back from vacation).

Thank you for all your studies!

After reading through the posts the bottom line I came away with...

Bottom Line:

The High Dividend Yield Index Fund is a market performer that pay's
a good dividend for income investors.

The Dividend Appreciation Index Fund is a excellent fund for growing
dividends due to the "quality" of the stocks & actually outperforms
the TSM Fund.

The two funds combined (High Dividend Yield & Dividend Appreciation Fund)
could be a very good strategy for income investors wanting dividend income
with the potential for dividend increases over time.

I believe their are a lot of investors in the FIRE community (Financial Independence/
Retire Early) that are looking for 2 good index funds with low ER's (expense ratio's)
that could help them achieve their goals without slowly liquidating off
their portfolios over time.

Is my "Bottom Line" evaluation of the data correct?

Once again Thank you for all your help!

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siamond
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Re: New Dividends Appreciation data series - backtesting

Post by siamond » Wed Aug 23, 2017 9:34 pm

snarlyjack wrote:
Tue Aug 22, 2017 6:58 pm
The two funds combined (High Dividend Yield & Dividend Appreciation Fund)
could be a very good strategy for income investors wanting dividend income with the potential for dividend increases over time.

I believe their are a lot of investors in the FIRE community (Financial Independence/ Retire Early) that are looking for 2 good index funds with low ER's (expense ratio's) that could help them achieve their goals without slowly liquidating off their portfolios over time.

Is my "Bottom Line" evaluation of the data correct?
Hm. May I be honest with you? This post (as well as previous posts of yours on this thread) seems to suffer from what is called confirmation bias. Such bias starts with somebody having a predefined idea in mind, often coming from a 'gut feeling', and is then solely seeking facts to confirm the idea, while filtering out anything that doesn't support the idea.

The evidence I presented shows that dividend growth/appreciation indices performed remarkable well in the past few decades, but the evidence is much less convincing for the high dividend yield strategy and for real-life funds. They didn't seem to hurt an investor (compared to TSM), mind you, but there was no obvious benefit. Personally, to accept a strategy that narrows down on a subset of the market (hence losing diversification benefits), I would want to see strong evidence of value-added, otherwise, what's the point? In addition, the historic shift from dividends to stock buybacks seems rather troubling for a dividends-centric strategy. Finally, it was pointed out many times on this forum that dividends are a fairly artificial construct, and what truly matters is total-return. Given those points, I am not quite sure how one can infer that combining a dividend appreciation strategy with a dividend high yield strategy would be such a solid approach for (early) retirees.

I am not saying your strategy is wrong, mind you, I am just trying to tell you that you might want to look at things with more of a skeptical eye (e.g. play the devil's advocate) instead of primarily seeking confirmation. Just some constructive criticism for you... I hope this helps.

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nedsaid
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Re: New Dividends Appreciation data series - backtesting

Post by nedsaid » Wed Aug 23, 2017 10:07 pm

Snarlyjack's strategy of combining High Dividend with Dividend Growth is not a bad strategy. The thing is, interest rates have been very low now for about eight years. It seems now that more people are catching on to this fact and are seeking to boost yield wherever they can find it. This is old, old news and after eight years of yield chasing, it is hard to me to advise people to chase yield even harder.

As interest rates (hopefully) normalize, this will have a depressing effect on High Yield stocks. That is if intermediate and long interest rates ever rise, the Fed's raising of short rates seemingly has had little if any effect on the rest of the yield curve. As bonds start providing more yield, they will be more competition for High Yield stocks. Why own fake bonds when you can own the real thing? Not only that, but High Dividend has been outperforming Large Value, and has almost matched the S&P 500, despite Large Value's disappointing performance since the 2008-2009 financial crisis. When what Larry Swedroe calls a bad Value strategy becomes the best of the Value strategies, that tells you something. What I am saying, those plowing into High Dividend are setting themselves up for disappointment.

Also, such sectors as Low Volatility stocks and Consumer Staples stocks are more expensive than the market itself, that tells you something too. These type of stocks tend to have higher than market dividend payouts. Pretty much, the "safe" stocks aren't so safe. People are setting themselves up for disappointment here too.

Grab a piece of chalk and write on the blackboard 100 times. I will not chase dividends, I will not chase dividends, I will not chase dividends. . .

Rising interest rates should be less of a drag on Dividend Growth as the underlying driver of performance is earnings growth. But I wouldn't pile into these right now either. Vanguard recently closed their active Dividend Growth fund which I have used as a benchmark for analysis. If the fund got closed, it tells me that investors were flooding it with money. When funds get too big, it is harder for managers to effectively invest the new monies and performance gets weighed down by fund bloat.

It just is not a good idea to chase performance. It is not a good idea to chase strategies. My gosh, we are eight years or more into all this yield chasing. The idea isn't bad, it is just that the timing isn't the best. It isn't as if nobody knows that interest rates are very low.
A fool and his money are good for business.

stlutz
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Re: New Dividends Appreciation data series - backtesting

Post by stlutz » Thu Aug 24, 2017 12:11 am

Also, such sectors as Low Volatility stocks and Consumer Staples stocks are more expensive than the market itself, that tells you something too.
Nedsaid, you're market-timing calls are like, so 2016. :)

Both USMV and SPLV (low volatility ETFs) have PE ratios below the S&P 500, if only by a small bit.

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nedsaid
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Re: New Dividends Appreciation data series - backtesting

Post by nedsaid » Thu Aug 24, 2017 2:04 am

stlutz wrote:
Thu Aug 24, 2017 12:11 am
Also, such sectors as Low Volatility stocks and Consumer Staples stocks are more expensive than the market itself, that tells you something too.
Nedsaid, you're market-timing calls are like, so 2016. :)

Both USMV and SPLV (low volatility ETFs) have PE ratios below the S&P 500, if only by a small bit.
Okay, then. Chase performance to your heart's content. :wink: :wink: :wink:
A fool and his money are good for business.

snarlyjack
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Re: New Dividends Appreciation data series - backtesting

Post by snarlyjack » Thu Aug 24, 2017 11:50 am

Siamond,

Your point is well taken.
Like you, I like to analyze things...

I have a short video for you, I hope you enjoy it.
(Please consider the video a compliment) :)
Once again Thank You for all your analysis.

https://www.youtube.com/watch?v=d0XKtUXgpOw
(Mentor Me Warren)

snarlyjack
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Re: New Dividends Appreciation data series - backtesting

Post by snarlyjack » Fri Aug 25, 2017 9:23 am

For those of us with inquisitive minds
this is what Warren Buffett thinks about
income producing stocks.

(Warren is dropping some "pixie dust" on us)

I hope you enjoy this short video...

https://www.youtube.com/watch?v=zF9KA549bQw

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nedsaid
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Re: New Dividends Appreciation data series - backtesting

Post by nedsaid » Fri Aug 25, 2017 9:42 am

stlutz wrote:
Thu Aug 24, 2017 12:11 am
Also, such sectors as Low Volatility stocks and Consumer Staples stocks are more expensive than the market itself, that tells you something too.
Nedsaid, you're market-timing calls are like, so 2016. :)

Both USMV and SPLV (low volatility ETFs) have PE ratios below the S&P 500, if only by a small bit.
I don't know stlutz, I just looked at all of this on July 3, 2017. Here is what I came up with then. I have to admit that I didn't look at every low volatility ETF out there, I just picked one. I was also thinking of Larry Swedroe's many warnings about low volatility.

Recently, I had a conversation with my broker and he made the comment that some low volatility stocks had seen some selling but he didn't elaborate and I didn't press him on that. In another thread, there was discussion about how under the surface many stocks had experienced a correction and that there seemed to be sectors out there looking cheap. A lot could have changed between July 3rd and now.
Let's look at forward P/E ratios as calculated by Morningstar. I also show Price/Book and Price/Sales. For fun, I threw in Vanguard Consumer Staples Index as Consumer Staples are popular defensive stocks.

Vanguard Value Index Admiral P/E 16.95 P/B 2.09 P/S 1.55 2.45% Yield
Vanguard High Dividend Index Investor P/E 17.73 P/B 2.64 P/S 1.95 3.03% Yield
Vanguard S&P 500 Index Admiral P/E 19.87 P/B 2.80 P/S 2.09 1.88% Yield
Vanguard Dividend Growth Investors P/E 20.40 P/B 4.15 P/S 1.37 2.00% Yield
Vanguard Growth Index Admiral P/E 24.66 P/B 4.40 P/S 3.30 1.28% Yield
iShares Edge MSCI Min Vol USA ETF P/E 22.61 P/B 3.24 P/S 2.51 2.09% Yield
Vanguard Consumer Staples Index Adm P/E 21.14 P/B 4.21 P/S 1.31 2.62% Yield

You can see that Low Volatility is more expensive than the S&P 500 and I will use this as a proxy
for the market itself. Larry Swedroe has warned to stay away as Low Vol appears to be overgrazed. Consumer Staples looks similarly overpriced.

Vanguard Value Index is the cheapest of all the funds shown though Dividend Growth and Consumer Staples have slightly lower Price/Sales ratios. From a valuation standpoint, plain old boring Large Value looks pretty good right now. Pretty much, I am saying buy Large Value but don't chase for dividends and don't chase low volatility.
Okay, let's bring this up to date as of August 25, 2017. Note P/E ratios are based on forward estimated earnings.

iShares Edge MSCI Min Vol USA ETF P/E 22.94 P/B 3.30 P/S 2.53 2.05% Yield (USMV)
PowerShares S&P 500 Low Volatility Portfolio P/E 20.78 P/B 2.93 P/S 2.37 1.98% Yield (SPLV)
Vanguard S&P 500 Index Admiral P/E 20.41 P/B 2.88 P/S 2.15 1.85% Yield (VFIAX)
Vanguard Consumer Staples Index Adm P/E 21.58 P/B 4.19 P/S 1.26 2.60% Yield (VCSAX)

This data is from Morningstar. You can see that little has changed since July 3rd. Both Low Volatility ETFs are still more expensive than the S&P 500, though the PowerShares version is definitely cheaper than the iShares version. Consumer Staples still look pretty darned expensive.

So I don't know, I stand by my July 3rd comments.
A fool and his money are good for business.

snarlyjack
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Re: New Dividends Appreciation data series - backtesting

Post by snarlyjack » Sun Aug 27, 2017 9:32 am

Nedsaid,

This research report has your name written all over it.
(Larry Swedroe analysis is also mentioned in this report).

I wanted to add this research report to the blog for future
investors thinking of a dividend strategy approach. I hope this
blog has been informative to investors...

Enjoy.

https://www.advisorperspectives.com/new ... esting.pdf

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